Can Rite Aid Defy the Odds?

April 10 is bound to be a big day for shareholders of Rite Aid (NYSE: RAD) . In anticipation of the company's fiscal fourth-quarter earnings, shares of the drugstore chain have done anything but well. Even though the company's closing price on April 4 marked a nearly 23% jump in share price year to date, Rite Aid's stock has plummeted 6% since the beginning of March.

With this short-term concern over the business' prospects impacting the stock, is now an attractive time to go all-in, or is Mr. Market signaling that the company's outlook is anything but bright?

Analysts have low but mixed expectations for Rite AidFor the quarter, analysts expect Rite Aid to report revenue of $6.54 billion. If this forecast is correct, it would signify a 1% increase in sales compared to the $6.46 billion the company reported in the year-ago quarter. According to the company's monthly sales release, Rite Aid's main growth driver for the quarter will probably be its higher comparable-store sales, partially offset by fewer locations in operation.

While Mr. Market seems positive about Rite Aid's top-line growth, the same cannot be said about profitability. For the quarter, analysts expect the company's earnings per share to come in around $0.04. This represents a 69% drop compared to the $0.13 per share the company reported in the same quarter last year; it would likely be attributed to a greater share count but could also be chalked up to higher costs.

Forecast

Fourth Quarter Last Year

Expected Difference

Revenue

$6.54 billion

$6.46 billion

1.2%

EPS

$0.04

$0.13

-69.2%

Source: Yahoo! Finance and Rite Aid

Between the 2013 and 2014 third quarters, Rite Aid increased its share count by roughly 7%. If this trend continues into its fourth quarter, it could be one of the main contributors to the company's lower profits.

Is Rite Aid a strong buy heading into earnings?In spite of the expected earnings shortfall, Rite Aid could still prove to be an excellent prospect heading into earnings. However, to know if this is the case, we should delve a little into the recent performances of some of the business' competitors: CVS Caremark (NYSE: CVS) and Walgreen (NASDAQ: WBA) .

Source: CVS

In its most recent quarter, CVS reported a nearly 5% gain in revenue from $31.4 billion to $32.8 billion. The main driver behind the company's attractive growth was its comparable-store sales, which increased 4% compared to the same quarter a year earlier. This stemmed from a 6.8% improvement in the company's comparable-pharmacy sales and higher prescriptions but was partially offset by lower front-end sales.

(CVS)

Actual Results

Year-Ago Results

Difference

Revenue

$32.8 billion

$31.4 billion

4.5%

EPS

$1.05

$0.90

16.7%

Source: CVS

Looking at profitability, CVS did even better. For the quarter, the company saw its earnings per share rise 17% from $0.90 to $1.05. In part, this was due to a 4% reduction in shares outstanding. But it was also attributed to depressed income in 2012 that management chalked up to a loss from the early extinguishment of debt.

Source: Walgreen

During its most recent quarter, Walgreen did just as well in terms of revenue but came up shy on earnings. For the quarter, management reported a 5% improvement in the company's revenue from $18.6 billion to $19.6 billion. Just as in the case of CVS, Walgreen's top-line improvement was attributed to a 4.3% jump in comparable-store sales.

(Walgreen)

Actual Results

Year-Ago Results

Difference

Revenue

$19.6 billion

$18.6 billion

5.4%

EPS

$0.78

$0.79

-1.3%

Source: Walgreen

Profits, on the other hand, did not quite measure up. For the quarter, earnings per share came in at $0.78, $0.01 below last year's results. Despite seeing higher revenue, the company saw its costs increase. This was largely driven by its cost of goods sold rising from 69.9% of sales to 71.2% because of a lower last in, first out provision compared to last year. Another contributor to the company's lackluster earnings was a 1% increase in shares outstanding.

Foolish takeawayBased on the data provided, it looks like analysts are fairly pessimistic about Rite Aid's prospects heading into its fourth quarter. Taking this into consideration, combined with the strong performance generated by CVS and Walgreen in their most recent quarters, Rite Aid might not be the best prospect in the drugstore industry. Among these, the data suggests that CVS might be the best performer, having trounced both revenue and earnings from the prior year.

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